Post Holdings Reports Results for the Third Quarter of Fiscal Year 2017


Post Holdings Reports Results for the Third Quarter of Fiscal Year 2017

ST. LOUIS, Aug. 03, 2017 (GLOBE NEWSWIRE) — Post Holdings, Inc. (NYSE:POST), a consumer packaged goods holding company, today reported results for the third fiscal quarter ended June 30, 2017.

Highlights:

  • Net sales of $1.27 billion
  • Operating profit of $190.5 million and net loss of $59.5 million; Adjusted EBITDA of $244.1 million
  • Completed the acquisition of Weetabix, a UK based RTE cereal manufacturer
  • Updated Adjusted EBITDA (non-GAAP) guidance range for fiscal year 2017 of $975-$990 million, inclusive of Weetabix

Third Quarter Consolidated Operating Results

Net sales were $1,272.1 million, an increase of 2.1%, or $26.0 million, compared to the prior year. Pro forma net sales (as defined later in this release under “Pro Forma Information”) were flat when compared to the same period in fiscal 2016.

Gross profit was $393.7 million or 30.9% of net sales, a decrease of $4.5 million compared to the prior year gross profit of $398.2 million or 32.0% of net sales. Selling, general and administrative (SG&A) expenses were $164.2 million or 12.9% of net sales, a decrease of $51.8 million compared to the prior year SG&A of $216.0 million or 17.3% of net sales. SG&A expenses for the third quarter of 2017 included $33.5 million of net foreign currency gains related to pounds sterling (GBP) held to fund the purchase price of Weetabix Limited (“Weetabix”). SG&A expenses for the third quarter of 2016 included a provision for $10.0 million in legal settlements related to egg antitrust class action claims.

Operating profit was $190.5 million, an increase of 34.2%, or $48.5 million, compared to the prior year and benefitted from $33.5 million of net foreign currency gains as discussed above. Net loss was $59.5 million, a decline of $62.8 million compared to net earnings of $3.3 million in the prior year. Net loss attributable to common shareholders was $62.9 million, or $0.93 per diluted common share. Net loss and net loss attributable to common shareholders included losses of $160.4 million related to early extinguishment of debt and $45.2 million primarily related to non-cash mark-to-market adjustments on interest rate and cross-currency swaps, both of which are discussed later in this release. Adjusted net earnings were $49.0 million, or $0.63 per adjusted diluted common share.

Adjusted EBITDA was $244.1 million, an increase of 5.7%, or $13.1 million, compared to the prior year.

Nine Month Consolidated Operating Results

Net sales for the nine months ended June 30, 2017 were $3,777.3 million, an increase of 0.3%, or $11.3 million, compared to the prior year. Gross profit for the nine month period was $1,137.0 million or 30.1% of net sales, a decrease of $33.0 million compared to the prior year gross profit of $1,170.0 million or 31.1% of net sales.

SG&A expenses for the nine month period were $615.6 million or 16.3% of net sales, an increase of $7.0 million compared to the prior year SG&A of $608.6 million or 16.2% of net sales. SG&A expenses for the nine months ended June 30, 2017 and June 30, 2016 included a provision for $74.5 million and $10.0 million, respectively, in legal settlements related to egg antitrust class action claims. SG&A expenses for the nine months ended June 30, 2017 included $33.5 million of net foreign currency gains related to pounds sterling (GBP) held to fund the purchase price of Weetabix.

Operating profit was $404.2 million for the nine month period, a decrease of 7.6%, or $33.2 million, compared to the prior year and was negatively impacted by a provision for $74.5 million in legal settlements and benefitted from $33.5 million of net foreign currency gains, both of which are discussed above. Net earnings were $34.1 million for the nine month period, an increase of 1.2%, or $0.4 million, compared to the prior year. For the nine months ended June 30, 2017, net earnings available to common shareholders were $23.9 million, or $0.34 per diluted common share. Net earnings and net earnings available to common shareholders include a $222.9 million loss related to early extinguishment of debt and a $100.3 million net gain primarily related to non-cash mark-to-market adjustments on interest rate and cross-currency swaps, both of which are discussed later in this release. Adjusted net earnings were $143.1 million, or $1.81 per adjusted diluted common share.

Adjusted EBITDA was $702.7 million for the nine month period, a decrease of 1.6%, or $11.7 million, compared to the prior year period.

Post Consumer Brands

Post Consumer Brands includes the ready-to-eat (“RTE”) cereal business.

Net sales were $427.3 million for the third quarter, a decline of 1.7%, or $7.2 million, compared to the prior year third quarter, with volumes declining 1.1%. Net sales benefitted from new licensed products Oreo O’s and Honey Maid S’mores and growth in Malt-O-Meal branded bags and Pebbles, offset by declines for government bid business, Honey Bunches of Oats and Great Grains. Segment profit was $96.9 million and $75.2 million for third quarter 2017 and 2016, respectively. Segment Adjusted EBITDA was $125.3 million and $104.7 million for third quarter 2017 and 2016, respectively.

For the nine months ended June 30, 2017, net sales were $1,279.0 million, a decline of 0.6%, or $7.2 million, compared to the prior year period. Segment profit was $268.6 million, compared to $212.8 million in the prior year period. Segment profit for the nine months ended June 30, 2017 and June 30, 2016 was negatively impacted by integration expenses of $5.8 million and $17.0 million, respectively. Segment Adjusted EBITDA was $355.0 million, compared to $308.2 million in the prior year period.

Michael Foods Group

Michael Foods Group includes the egg, potato, cheese and pasta businesses.

Net sales were $524.2 million for the third quarter, an increase of 1.2%, or $6.2 million, over the reported prior year third quarter. Pro forma net sales (as defined later in this release under “Pro Forma Information”) declined 4.2%, or $22.7 million, over the same period in fiscal 2016. The pro forma net sales decline was primarily driven by a 20.3% decline in cheese related to branded cheese distribution losses and the exit of certain private label business. Pro forma egg sales (as defined later in this release under “Pro Forma Information”) declined 2.0% as a result of reduced pricing related to the roll back of the temporary component of avian influenza pricing and reduced market-based pricing in the ingredient channel. Pro forma egg volumes (as defined later in this release under “Pro Forma Information”) increased 6.0%. Net sales and volume information for potato, cheese and pasta products is disclosed in a table presented later in this release.

Segment profit was $46.4 million and $65.6 million for third quarter 2017 and 2016, respectively. Segment Adjusted EBITDA was $82.9 million and $109.2 million for third quarter 2017 and 2016, respectively. Segment profit for the third quarter of 2016 was negatively impacted by a provision for $10.0 million in legal settlements as discussed above.

For the nine months ended June 30, 2017, net sales were $1,579.0 million, a decline of 5.0%, or $83.1 million, over the reported prior year period. Segment profit was $72.1 million, compared to $236.0 million in the prior year period. Segment profit for the nine months ended June 30, 2017 and June 30, 2016 was negatively impacted by a provision for $74.5 million and $10.0 million, respectively, in legal settlements as discussed above. Segment Adjusted EBITDA was $254.2 million, compared to $349.1 million in the prior year period.

Active Nutrition

Active Nutrition includes protein shakes, bars and powders and nutritional supplements.

Net sales were $188.7 million for the third quarter, an increase of 20.9%, or $32.6 million, over the prior year third quarter. Net sales growth was primarily driven by strong growth for shake products which was partially offset by declines of bar and powder products. Segment profit was $28.0 million and $17.7 million for third quarter 2017 and 2016, respectively. Segment Adjusted EBITDA was $34.3 million and $24.1 million for third quarter 2017 and 2016, respectively.

For the nine months ended June 30, 2017, net sales were $519.9 million, an increase of 25.1%, or $104.2 million, over the prior year period. Segment profit was $74.1 million, compared to $42.0 million in the prior year period. Segment Adjusted EBITDA was $92.9 million, compared to $60.8 million in the prior year period.

Private Brands

Private Brands primarily includes peanut and other nut butters, dried fruit and nuts, and granola.

Net sales were $132.0 million for the third quarter, a decline of 4.3%, or $5.9 million, compared to the prior year third quarter. Growth in net sales and volume for traditional and organic peanut butter was offset by lower net pricing for almond products and volume declines for dried fruit and nut and granola. Segment profit was $8.0 million and $9.0 million for third quarter 2017 and 2016, respectively. Segment Adjusted EBITDA was $14.7 million and $15.2 million for third quarter 2017 and 2016, respectively.

For the nine months ended June 30, 2017, net sales were $399.7 million, a decline of 0.9%, or $3.5 million, over the prior year period. Segment profit was $24.5 million, compared to $29.6 million in the prior year period. Segment Adjusted EBITDA was $44.4 million, compared to $48.2 million in the prior year period.

Interest, Loss on Extinguishment of Debt, Other Expense (Income) and Income Tax

Interest expense, net was $76.5 million for the third quarter compared to $77.3 million for the prior year quarter. For the nine months ended June 30, 2017, interest expense, net was $229.6 million, compared to $232.3 million for the nine months ended June 30, 2016.

Loss on extinguishment of debt of $160.4 million was recorded in the third quarter of fiscal 2017 and resulted from payments made during the third quarter related to Post’s tender offer for its 7.75% senior notes due 2024 and its 8.00% senior notes due 2025 and Post’s redemption of the 7.75% senior notes that remained outstanding following the expiration of the tender offer. Loss on extinguishment of debt of $222.9 million was recorded in the nine months ended June 30, 2017 and resulted from the payments made in the third quarter as described above and payments made in March 2017 to redeem Post’s 6.75% senior notes due 2021 and 7.375% senior notes due 2022.

Other expense (income), net relates to non-cash mark-to-market adjustments and cash settlements on interest rate and cross-currency swaps. Other expense, net was $45.2 million for the third quarter of fiscal 2017, compared to $62.6 million for the third quarter of fiscal 2016. For the nine months ended June 30, 2017, other income, net was $100.3 million, compared to an expense of $169.4 million for the nine months ended June 30, 2016.

Income tax benefit was $32.1 million, or an effective income tax rate of 35.0%, in the third quarter of fiscal 2017, compared to $1.2 million and an effective income tax rate of negative 57.1% in the third quarter of fiscal 2016. For the nine months ended June 30, 2017, income tax expense was $17.9 million, or an effective income tax rate of 34.4%, compared to $2.0 million and an effective income tax rate of 5.6% for the nine months ended June 30, 2016.

Share Repurchases

On June 6, 2017, the Board of Directors approved an additional $250 million share repurchase authorization over the next two years, which was in addition to the previous share repurchase authorization of $300 million over a two year period beginning on February 2, 2016. During the third quarter of fiscal 2017, Post repurchased 2.2 million shares for $180.6 million at an average price of $81.92 per share. During the nine months ended June 30, 2017, Post repurchased 3.9 million shares for $313.7 million at an average price of $79.45 per share. At the end of the third quarter of fiscal 2017, Post had $236.3 million remaining under its June 2017 share repurchase authorization.

Acquisition

On July 3, 2017, Post completed the acquisition of Weetabix, a leading United Kingdom based packaged food company that primarily produces RTE cereal products.

Outlook

Post management has updated its fiscal 2017 Adjusted EBITDA range to be between $975-$990 million, inclusive of Weetabix.

Post management expects fiscal 2017 capital expenditures, inclusive of Weetabix, to range between $200-$220 million, including approximately $60-$70 million related to growth activities, of which approximately $30-$35 million is related to the previously announced cage-free housing conversion at the Bloomfield, Nebraska facility. Maintenance capital expenditures for fiscal 2017 are expected to range between $140-$160 million.

The Company provides Adjusted EBITDA guidance only on a non-GAAP basis and does not provide a reconciliation of its forward-looking Adjusted EBITDA non-GAAP guidance measure to the most directly comparable GAAP measure due to the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliation, including adjustments that could be made for non-cash mark-to-market adjustments and cash settlements on interest rate and cross-currency swaps, provision for legal settlement, net foreign currency gains for purchase price of acquisition, transaction and integration costs, restructuring and plant closure costs, assets held for sale, mark-to-market adjustments on commodity hedges and other charges reflected in the Company’s reconciliation of historic numbers, the amounts of which, based on historical experience, could be significant. For additional information regarding Post’s non-GAAP measures, see the related explanations presented under “Use of Non-GAAP Measures.”

Use of Non-GAAP Measures

The Company uses certain non-GAAP measures in this release to supplement the financial measures prepared in accordance with U.S. generally accepted accounting principles (GAAP). These non-GAAP measures include total segment profit, Adjusted net earnings (loss), Adjusted diluted earnings (loss) per common share, Adjusted EBITDA and segment Adjusted EBITDA. The reconciliation of each of these non-GAAP measures to the most directly comparable GAAP measure is provided later in this release under “Explanation and Reconciliation of Non-GAAP Measures.”

Management uses certain of these non-GAAP measures, including Adjusted EBITDA and segment Adjusted EBITDA, as key metrics in the evaluation of underlying Company and segment performance, in making financial, operating and planning decisions, and, in part, in the determination of cash bonuses for its executive officers and employees. Management believes the use of these non-GAAP measures provides increased transparency and assists investors in understanding the underlying operating performance of the Company and its segments and in the analysis of ongoing operating trends. Non-GAAP measures are not prepared in accordance with GAAP, as they exclude certain items as described later in this release. These non-GAAP measures may not be comparable to similarly titled measures of other companies. For additional information regarding the Company’s non-GAAP measures, see the related explanations provided under “Explanation and Reconciliation of Non-GAAP Measures” later in this release.

Conference Call to Discuss Earnings Results and Outlook

The Company will host a conference call on Friday, August 4, 2017 at 9:00 a.m. EDT to discuss financial results for the third quarter of fiscal year 2017 and fiscal year 2017 outlook and to respond to questions. Robert V. Vitale, President and Chief Executive Officer, and Jeff A. Zadoks, Senior Vice President and Chief Financial Officer, will participate in the call.

Interested parties may join the conference call by dialing (877) 540-0891 in the United States and (678) 408-4007 from outside of the United States. The conference identification number is 51664510. Interested parties are invited to listen to the webcast of the conference call, which can be accessed by visiting the Investor Relations section of the Company’s website at www.postholdings.com.

A replay of the conference call will be available through Friday, August 11, 2017 by dialing (800) 585-8367 in the United States and (404) 537-3406 from outside of the United States and using the conference identification number 51664510. A webcast replay will also be available for a limited period on the Company’s website in the Investor Relations section.

Forward-Looking Statements

Certain matters discussed in this release and on the conference call are forward-looking statements, including our Adjusted EBITDA outlook for fiscal 2017 and our capital expenditures expectations, including capital expenditure expectations for growth and maintenance. Such statements involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Potential risks and uncertainties include the following:

  • our ability to promptly and effectively integrate the Weetabix business and obtain expected cost savings and synergies within the expected timeframe;
  • our ability to continue to compete in our product markets and our ability to retain our market position;
  • our ability to anticipate and respond to changes in consumer preferences and trends and introduce new products;
  • our ability to identify, complete and integrate acquisitions and manage our growth;
  • changes in our management, financing and business operations;
  • significant volatility in the costs of certain raw materials, commodities, packaging or energy used to manufacture our products;
  • impairment in the carrying value of goodwill or other intangibles;
  • our ability to successfully implement business strategies to reduce costs;
  • our ability to comply with increased regulatory scrutiny related to certain of our products and/or international sales;
  • allegations that our products cause injury or illness, product recalls and product liability claims and other litigation;
  • legal and regulatory factors, including advertising and labeling laws, changes in food safety and laws and regulations governing animal feeding and housing operations;
  • our high leverage, our ability to obtain additional financing (including both secured and unsecured debt), and our ability to service our outstanding debt (including covenants that restrict the operation of our business);
  • the ultimate impact litigation may have on us;
  • the loss or bankruptcy of a significant customer;
  • consolidations in the retail grocery and foodservice industries;
  • the ability of our private label products to compete with nationally branded products;
  • disruptions or inefficiencies in supply chain;
  • our reliance on third party manufacturers for certain of our products;
  • changes in economic conditions, disruptions in the U.S. and global capital and credit markets, and fluctuations in foreign currency exchange rates;
  • changes in estimates in critical accounting judgments and changes to or new laws and regulations affecting our business;
  • the impact of the United Kingdom’s exit from the European Union (commonly known as “Brexit”) on us and our operations;
  • changes in weather conditions, natural disasters, disease outbreaks and other events beyond our control;
  • loss of key employees, labor strikes, work stoppages or unionization efforts;
  • losses or increased funding and expenses related to our qualified pension and other post-retirement plans;
  • business disruptions caused by information technology failures and/or technology hacking;
  • our ability to protect our intellectual property and other assets;
  • our ability to successfully operate our international operations in compliance with applicable laws and regulations;
  • significant differences in our actual operating results from our guidance regarding our future performance;
  • our ability to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, including with respect to acquired businesses; and
  • other risks and uncertainties described in the Company’s filings with the Securities and Exchange Commission.

These forward-looking statements represent the Company’s judgment as of the date of this release. The Company disclaims, however, any intent or obligation to update these forward-looking statements.

About Post Holdings, Inc.

Post Holdings, Inc., headquartered in St. Louis, Missouri, is a consumer packaged goods holding company operating in the center-of-the-store, foodservice, food ingredient, private label, refrigerated and active nutrition food categories. Through its Post Consumer Brands business, Post is a leader in the North American ready-to-eat cereal category and offers a broad portfolio that includes recognized brands such as Honey Bunches of Oats®, Pebbles™, Great Grains® and Malt-O-Meal® bag cereal as well as granola and hot wheat products. Post is also a leader in the United Kingdom ready-to-eat cereal category with Weetabix® and Alpen®. Post’s Michael Foods Group supplies value-added egg products, refrigerated potato products, cheese and other dairy case products and dry pasta products to the foodservice, food ingredient and private label retail channels and markets retail brands including All Whites®, Better’n Eggs®, Simply Potatoes® and Crystal Farms®. Post’s Active Nutrition platform aids consumers in adopting healthier lifestyles through brands such as Premier Protein®, PowerBar® and Dymatize®. Post’s Private Brands Group manufactures private label peanut butter and other nut butters, dried fruits and baking and snacking nuts. For more information, visit www.postholdings.com

 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(in millions, except per share data)
       
  Three Months Ended
June 30,
  Nine Months Ended
June 30,
  2017   2016   2017   2016
Net Sales $ 1,272.1     $ 1,246.1     $ 3,777.3     $ 3,766.0  
Cost of goods sold 878.4     847.9     2,640.3     2,596.0  
Gross Profit 393.7     398.2     1,137.0     1,170.0  
               
Selling, general and administrative expenses 164.2     216.0     615.6     608.6  
Amortization of intangible assets 38.9     38.2     116.8     114.4  
Other operating expenses, net 0.1     2.0     0.4     9.6  
Operating Profit 190.5     142.0     404.2     437.4  
               
Interest expense, net 76.5     77.3     229.6     232.3  
Loss on extinguishment of debt 160.4         222.9      
Other expense (income), net 45.2     62.6     (100.3 )   169.4  
(Loss) Earnings before Income Taxes (91.6 )   2.1     52.0     35.7  
Income tax (benefit) expense (32.1 )   (1.2 )   17.9     2.0  
Net (Loss) Earnings (59.5 )   3.3     34.1     33.7  
Preferred stock dividends (3.4 )   (3.3 )   (10.2 )   (21.7 )
Net (Loss) Earnings Available to Common Shareholders $ (62.9 )   $     $ 23.9     $ 12.0  
               
(Loss) Earnings per Common Share:              
Basic $ (0.93 )   $     $ 0.35     $ 0.17  
Diluted $ (0.93 )   $     $ 0.34     $ 0.17  
               
Weighted-Average Common Shares Outstanding:              
Basic 67.5     69.2     68.3     68.6  
Diluted 67.5     69.2     69.8     70.1  

 

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in millions)
       
  June 30, 2017   September 30, 2016
ASSETS
Current Assets      
Cash and cash equivalents $ 2,472.7     $ 1,143.6  
Restricted cash 5.9     8.4  
Receivables, net 480.3     385.0  
Inventories 526.6     503.1  
Prepaid expenses and other current assets 34.7     36.8  
Total Current Assets 3,520.2     2,076.9  
       
Property, net 1,366.9     1,354.4  
Goodwill 3,126.0     3,079.7  
Other intangible assets, net 2,768.3     2,833.7  
Other assets 22.8     15.9  
Total Assets $ 10,804.2     $ 9,360.6  
       
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities      
Current portion of long-term debt $ 22.7     $ 12.3  
Accounts payable 214.8     264.4  
Other current liabilities 309.8     357.3  
Total Current Liabilities 547.3     634.0  
       
Long-term debt 6,368.5     4,551.2  
Deferred income taxes 793.1     726.5  
Other liabilities 344.2     440.3  
Total Liabilities 8,053.1     6,352.0  
       
Shareholders’ Equity      
Preferred stock      
Common stock 0.7     0.7  
Additional paid-in capital 3,569.8     3,546.0  
Accumulated deficit (390.2 )   (424.3 )
Accumulated other comprehensive loss (62.0 )   (60.4 )
Treasury stock, at cost (367.2 )   (53.4 )
Total Shareholders’ Equity 2,751.1     3,008.6  
Total Liabilities and Shareholders’ Equity $ 10,804.2     $ 9,360.6  

 

SELECTED CONDENSED CONSOLIDATED CASH FLOW INFORMATION (Unaudited)
(in millions)
   
  Nine Months Ended
June 30,
  2017   2016
Cash provided by (used in):      
Operating activities $ 208.2     $ 367.5  
Investing activities, including capital expenditures of $125.0 and $81.1 (202.2 )   (150.9 )
Financing activities 1,288.2     (25.6 )
Effect of exchange rate changes on cash and cash equivalents 34.9     0.8  
Net increase in cash and cash equivalents $ 1,329.1     $ 191.8  

 

SEGMENT INFORMATION (Unaudited)
(in millions)
           
      Three Months Ended
June 30,
  Nine Months Ended
June 30,
    2017   2016   2017   2016
Net Sales              
  Post Consumer Brands $ 427.3     $ 434.5     $ 1,279.0     $ 1,286.2  
  Michael Foods Group 524.2     518.0     1,579.0     1,662.1  
  Active Nutrition 188.7     156.1     519.9     415.7  
  Private Brands 132.0     137.9     399.7     403.2  
  Eliminations (0.1 )   (0.4 )   (0.3 )   (1.2 )
  Total $ 1,272.1     $ 1,246.1     $ 3,777.3     $ 3,766.0  
Segment Profit              
  Post Consumer Brands $ 96.9     $ 75.2     $ 268.6     $ 212.8  
  Michael Foods Group 46.4     65.6     72.1     236.0  
  Active Nutrition 28.0     17.7     74.1     42.0  
  Private Brands 8.0     9.0     24.5     29.6  
  Total segment profit 179.3     167.5     439.3     520.4  
  General corporate (income) expenses and other (11.2 )   25.5     35.1     83.0  
  Interest expense, net 76.5     77.3     229.6     232.3  
  Loss on extinguishment of debt 160.4         222.9      
  Other expense (income), net 45.2     62.6     (100.3 )   169.4  
    (Loss) Earnings before Income Taxes (91.6 )   2.1     52.0     35.7  

 

SUPPLEMENTAL MICHAEL FOODS GROUP SEGMENT INFORMATION (Unaudited)

The below table presents net sales and volume percentage changes for the current quarter compared to the prior year quarter for additional products within the Michael Foods Group segment.

Product   Net Sales Percentage Change   Volume Percentage Change
Potato   15.3 %   15.1 %
Cheese   (20.3 %)   (20.9 %)
Pasta   (9.5 %)   (8.8 %)

PRO FORMA INFORMATION

Pro forma net sales and pro forma volumes, as used in the text of this release, are defined as the comparison of the GAAP results for the three-month period ended June 30, 2017 to the same three-month period ended June 30, 2016, adjusted to include results of the acquired business for the period presented in the table below. Pro forma net sales and pro forma volumes have not been prepared in accordance with the requirements of Article 11 of Regulation S-X.

Business   Type   Segment   Pro Forma Period
National Pasteurized Eggs   Acquisition   Michael Foods Group   April 1, 2016 – June 30, 2016

 

RECONCILIATION OF NET SALES AND MICHAEL FOODS GROUP NET SALES
TO PRO FORMA NET SALES AND PRO FORMA MICHAEL FOODS GROUP NET SALES (Unaudited)
(in millions)
   
  Three Months Ended
June 30,
  2017   2016
Net Sales $ 1,272.1     $ 1,246.1  
Pre-acquisition net sales from National Pasteurized Eggs     28.9  
Pro Forma Net Sales $ 1,272.1     $ 1,275.0  
       
Michael Foods Group Net Sales 524.2     518.0  
Pre-acquisition net sales from National Pasteurized Eggs     28.9  
Pro Forma Net Sales $ 524.2     $ 546.9  

 

RECONCILIATION OF EGG NET SALES PERCENTAGE CHANGE AND EGG VOLUMES PERCENTAGE CHANGE
TO PRO FORMA EGG NET SALES PERCENTAGE CHANGE AND PRO FORMA EGG VOLUMES PERCENTAGE CHANGE
(Unaudited)
   
  Three Months Ended
June 30, 2017
Egg Net Sales Percentage Change 6.4 %
Impact of inclusion of pre-acquisition net sales of National Pasteurized Eggs (8.4 %)
Pro Forma Egg Net Sales Percentage Change (2.0 %)
   
Egg Volumes Percentage Change 11.1 %
Impact of inclusion of pre-acquisition volumes of National Pasteurized Eggs (5.1 %)
Pro Forma Egg Volumes Percentage Change 6.0 %


EXPLANATION AND RECONCILIATION OF NON-GAAP MEASURES

The Company uses certain non-GAAP measures in this release to supplement the financial measures prepared in accordance with U.S. generally accepted accounting principles (GAAP). These non-GAAP measures include total segment profit, Adjusted net earnings (loss), Adjusted diluted earnings (loss) per common share, Adjusted EBITDA and segment Adjusted EBITDA. The reconciliation of each of these non-GAAP measures to the most directly comparable GAAP measure is provided in the tables following this section.

Non-GAAP measures are not prepared in accordance with GAAP, as they exclude certain items as described below. These non-GAAP measures may not be comparable to similarly titled measures of other companies.

Total segment profit
Total segment profit represents the aggregation of the segment profit for each of the Company’s reportable segments. The Company believes total segment profit is useful to investors in evaluating the Company’s operating performance because it facilitates period-to-period comparison of results of segment operations.

Adjusted net earnings (loss) and Adjusted diluted earnings (loss) per common share
The Company believes Adjusted net earnings (loss) and Adjusted diluted earnings (loss) per common share are useful to investors in evaluating the Company’s operating performance because they exclude items that affect the comparability of the Company’s financial results and could potentially distort an understanding of the trends in business performance.

Adjusted net earnings (loss) and Adjusted diluted earnings (loss) per common share are adjusted for the following items:

a.     Non-cash mark-to-market adjustments and cash settlements on interest rate and cross-currency swaps: The Company has excluded the impact of non-cash mark-to-market adjustments and cash settlements on interest rate and cross-currency swaps due to the inherent uncertainty and volatility associated with such amounts based on changes in assumptions with respect to estimates of fair value and economic conditions and the amount and frequency of such adjustments and settlements are not consistent.
b.     Premium on debt extinguishment: The Company has excluded payments for premiums on debt extinguishment as such payments are inconsistent in amount and frequency. Additionally, the Company believes that these costs do not reflect expected ongoing future operating expenses and do not contribute to a meaningful evaluation of the Company’s current operating performance or comparisons of the Company’s operating performance to other periods.
c.     Provision for legal settlement: The Company has excluded gains and losses recorded to recognize the anticipated or actual resolution of certain litigation as the Company believes such gains and losses do not reflect expected ongoing future operating income and expenses and do not contribute to a meaningful evaluation of the Company’s current operating performance or comparisons of the Company’s operating performance to other periods.
d.     Net foreign currency gains for purchase price of acquisition: The Company has excluded net foreign currency gains for the purchase price of acquisitions as the Company believes such gains do not reflect expected ongoing future operating income and do not contribute to a meaningful evaluation of the Company’s current operating performance or comparisons of the Company’s operating performance to other periods.
e.     Transaction costs and integration costs: The Company has excluded transaction costs related to professional service fees and other related costs associated with signed and closed business combinations and divestitures and integration costs incurred to integrate acquired or to-be-acquired businesses as the Company believes that these exclusions allow for more meaningful evaluation of the Company’s current operating performance and comparisons of the Company’s operating performance to other periods. The Company believes such costs are generally not relevant to assessing or estimating the long-term performance of acquired assets as part of the Company or the performance of the divested assets, and are not factored into management’s evaluation of potential acquisitions or its performance after completion of an acquisition or the evaluation to divest an asset. In addition, the frequency and amount of such charges varies significantly based on the size and timing of the acquisitions and divestitures and the maturity of the businesses being acquired or divested. Also, the size, complexity and/or volume of past acquisitions and divestitures, which often drive the magnitude of such expenses, may not be indicative of the size, complexity and/or volume of future acquisitions or divestitures. By excluding these expenses, management is better able to evaluate the Company’s ability to utilize its existing assets and estimate the long-term value that acquired assets will generate for the Company. Furthermore, the Company believes that the adjustments of these items more closely correlate with the sustainability of the Company’s operating performance.
f.     Restructuring and plant closure costs, including accelerated depreciation: The Company has excluded certain costs associated with facility closures as the amount and frequency of such adjustments are not consistent. Additionally, the Company believes that these costs do not reflect expected ongoing future operating expenses and do not contribute to a meaningful evaluation of the Company’s current operating performance or comparisons of the Company’s operating performance to other periods.
g.     Assets held for sale: The Company has excluded adjustments recorded to adjust the carrying value of facilities and other assets classified as held for sale as such adjustments represent non-cash items and the amount and frequency of such adjustments are not consistent. Additionally, the Company believes that these adjustments do not reflect expected ongoing future operating expenses and do not contribute to a meaningful evaluation of the Company’s current operating performance or comparisons of the Company’s operating performance to other periods.
h.     Inventory valuation adjustments on acquired businesses: The Company has excluded the impact of fair value step-up adjustments to inventory in connection with business combinations as such adjustments represent non-cash items, are not consistent in amount and frequency and are significantly impacted by the timing and size of the Company’s acquisitions.
i.     Mark-to-market adjustments on commodity hedges: The Company has excluded the impact of mark-to-market adjustments on commodity hedges due to the inherent uncertainty and volatility associated with such amounts based on changes in assumptions with respect to fair value estimates. Additionally, these adjustments are primarily non-cash items and the amount and frequency of such adjustments are not consistent.
j.     Gain on sale of business: The Company has excluded gains recorded on divestitures as the amount and frequency of such gains are not consistent. Additionally, the Company believes that these gains do not reflect expected ongoing future operating income and do not contribute to a meaningful evaluation of the Company’s current operating performance or comparisons of the Company’s operating performance to other periods.
k.     Foreign currency gains and losses on intercompany loans: The Company has excluded the impact of foreign currency fluctuations related to intercompany loans denominated in currencies other than the functional currency of the respective legal entity in evaluating Company performance to allow for more meaningful comparisons of performance to other periods.
l.     Income Tax: The Company has included the income tax impact of the non-GAAP adjustments using the statutory income tax rate, as noted in the footnote of the reconciliation tables, as the Company believes that the Company’s GAAP effective income tax rate as reported is not representative of the income tax expense impact of the adjustments.
m.     Preferred stock: The Company has included dividend and weighted-average diluted share adjustments related to its convertible preferred stock using the “if-converted” method when the convertible preferred stock is dilutive on an adjusted basis.

Adjusted EBITDA and segment Adjusted EBITDA
The Company believes that Adjusted EBITDA is useful to investors in evaluating the Company’s operating performance and liquidity because (i) we believe it is widely used to measure a company’s operating performance without regard to items such as depreciation and amortization, which can vary depending upon accounting methods and the book value of assets, (ii) it presents a measure of corporate performance exclusive of the Company’s capital structure and the method by which the assets were acquired, and (iii) it is a financial indicator of a company’s ability to service its debt, as the Company is required to comply with certain covenants and limitations that are based on variations of EBITDA in the Company’s financing documents. The Company believes that segment Adjusted EBITDA is useful to investors in evaluating the Company’s operating performance because it allows for assessment of the operating performance of each reportable segment. Management uses Adjusted EBITDA to provide forward-looking guidance and uses Adjusted EBITDA and segment Adjusted EBITDA to forecast future results.

Adjusted EBITDA and segment Adjusted EBITDA reflect adjustments for interest expense, net, income tax (benefit) expense, depreciation and amortization, as well as the adjustments discussed above reflected in Adjusted net earnings (loss) and Adjusted diluted earnings (loss) per common share, but do not adjust for the premium on debt extinguishment, income tax and preferred stock adjustments as discussed above, and adjust for the following items:
n.     Loss on extinguishment of debt: The Company has excluded losses recorded on extinguishment of debt as such losses are inconsistent in amount and frequency. Additionally, the Company believes that these costs do not reflect expected ongoing future operating expenses and do not contribute to a meaningful evaluation of the Company’s current operating performance or comparisons of the Company’s operating performance to other periods.
o.     Non-cash stock-based compensation: The Company’s compensation strategy includes the use of stock-based compensation to attract and retain executives and employees by aligning their long-term compensation interests with shareholders’ investment interests. The Company has excluded non-cash stock-based compensation as non-cash stock-based compensation can vary significantly based on reasons such as the timing, size and nature of the awards granted and subjective assumptions which are unrelated to operational decisions and performance in any particular period and do not contribute to meaningful comparisons of the Company’s operating performance to other periods.

 

RECONCILIATION OF NET (LOSS) EARNINGS AVAILABLE TO COMMON SHAREHOLDERS
TO ADJUSTED NET EARNINGS (Unaudited)
(in millions)
         
    Three Months Ended
June 30,
  Nine Months Ended
June 30,
    2017   2016   2017   2016
Net (Loss) Earnings Available to Common Shareholders $ (62.9 )   $     $ 23.9     $ 12.0  
Dilutive preferred stock dividends              
Net (Loss) Earnings for Diluted (Loss) Earnings per Share (62.9 )       23.9     12.0  
               
Adjustments:              
  Non-cash mark-to-market adjustments and cash settlements on interest rate and cross-currency swaps 45.2     62.6     (100.3 )   169.4  
  Premium on debt extinguishment 151.9         219.8      
  Provision for legal settlement     10.0     73.6     10.0  
  Net foreign currency gains for purchase price of acquisition (33.5 )       (33.5 )    
  Integration costs 1.0     3.3     5.8     17.0  
  Transaction costs 3.4         6.1     1.1  
  Restructuring and plant closure costs, including accelerated depreciation     0.7     0.2     6.4  
  Assets held for sale     1.1     (0.2 )   9.5  
  Inventory valuation adjustments on acquired businesses             1.1  
  Mark-to-market adjustments on commodity hedges (1.1 )   (6.4 )   (3.8 )   (5.4 )
  Gain on sale of business             (2.0 )
  Foreign currency loss (gain) on intercompany loans     0.1         (0.1 )
  Total Net Adjustments 166.9     71.4     167.7     207.0  
Income tax effect on adjustments (1) (58.4 )   (25.0 )   (58.7 )   (72.5 )
Non-GAAP dilutive preferred stock dividends adjustment (2) 3.4     3.3     10.2     10.1  
Adjusted Net Earnings $ 49.0     $ 49.7     $ 143.1     $ 156.6  
                 
(1) Income tax effect on adjustments is calculated using the statutory rate of 35.0% for all periods.
(2) Potentially dilutive convertible preferred stock is calculated using the “if-converted” method. On a GAAP basis, the convertible preferred stock was anti-dilutive for all periods. On an adjusted basis, a portion of the convertible preferred stock was dilutive for all periods. The adjustment in the table above reflects the add back of dividends related to the portion of the convertible preferred stock that was dilutive on an adjusted basis.

RECONCILIATION OF WEIGHTED-AVERAGE DILUTED SHARES OUTSTANDING
TO ADJUSTED WEIGHTED-AVERAGE DILUTED SHARES OUTSTANDING (Unaudited)
(in millions)

Adjusted diluted earnings (loss) per share is based on the weighted-average number of common shares used for the Diluted (Loss) Earnings per Common Share calculation, potentially adjusted for dilutive securities that were anti-dilutive for Diluted (Loss) Earnings per Common Share.

    Three Months Ended
June 30,
  Nine Months Ended
June 30,
    2017   2016   2017   2016
Weighted-average shares for diluted (loss) earnings per share 67.5     69.2     69.8     70.1  
Effect of securities that were anti-dilutive for diluted (loss) earnings per share:              
  Stock options 1.2     1.2          
  Stock appreciation rights 0.1     0.1          
  Restricted stock awards 0.2     0.4          
  Preferred shares conversion to common (1) 9.1     9.1     9.1     9.1  
Adjusted weighted-average shares for diluted earnings (loss) per share 78.1     80.0     78.9     79.2  
                 
(1) Potentially dilutive convertible preferred stock is calculated using the “if-converted” method. On a GAAP basis, the convertible preferred stock was anti-dilutive for all periods. On an adjusted basis, a portion of the convertible preferred stock was dilutive for all periods. The adjustments in the table above reflect the portion of weighted-average shares of the convertible preferred stock that were dilutive on an adjusted basis.

 

RECONCILIATION OF DILUTED (LOSS) EARNINGS PER COMMON SHARE
TO ADJUSTED DILUTED EARNINGS PER COMMON SHARE (Unaudited)
         
    Three Months Ended
June 30,
  Nine Months Ended
June 30,
    2017   2016   2017   2016
Diluted (Loss) Earnings per Common Share $ (0.93 )   $     $ 0.34     $ 0.17  
Adjustment to Diluted (Loss) Earnings per Common Share (1) 0.13         (0.04 )   (0.02 )
Adjusted Diluted (Loss) Earnings per Common Share, as calculated using adjusted weighted-average diluted shares (1) (0.80 )       0.30     0.15  
               
Adjustments (2):              
  Non-cash mark-to-market adjustments and cash settlements on interest rate and cross-currency swaps 0.58     0.78     (1.27 )   2.14  
  Premium on debt extinguishment 1.95         2.78      
  Provision for legal settlement     0.13     0.93     0.13  
  Net foreign currency gains for purchase price of acquisition (0.43 )       (0.42 )    
  Integration costs 0.01     0.04     0.07     0.22  
  Transaction costs 0.04         0.08     0.01  
  Restructuring and plant closure costs, including accelerated depreciation     0.01         0.08  
  Assets held for sale     0.01         0.12  
  Inventory valuation adjustments on acquired businesses             0.01  
  Mark-to-market adjustments on commodity hedges (0.01 )   (0.08 )   (0.05 )   (0.07 )
  Gain on sale of business             (0.03 )
  Total Net Adjustments 2.14     0.89     2.12     2.61  
Income tax effect on adjustments (3) (0.75 )   (0.31 )   (0.74 )   (0.91 )
Non-GAAP dilutive preferred stock dividends adjustment (4) 0.04     0.04     0.13     0.13  
Adjusted Diluted Earnings per Common Share $ 0.63     $ 0.62     $ 1.81     $ 1.98  
                 
(1) Represents the effect of the change in adjusted weighted-average diluted shares (as reconciled in the prior table), after consideration of the adjustments (which are presented in this table).
(2) Per share adjustments are based on adjusted weighted-average diluted shares (as reconciled in the prior table).
(3) Income tax effect on adjustments is calculated using the statutory rate of 35.0% for all periods.
(4) Potentially dilutive convertible preferred stock is calculated using the “if-converted” method. On a GAAP basis, the convertible preferred stock was anti-dilutive for all periods. On an adjusted basis, a portion of the convertible preferred stock was dilutive for all periods. The adjustment in the table above reflects the add back of dividends related to the portion of the convertible preferred stock that was dilutive on an adjusted basis.

 

RECONCILIATION OF NET (LOSS) EARNINGS TO ADJUSTED EBITDA (Unaudited)
(in millions)
       
  Three Months Ended
June 30,
  Nine Months Ended
June 30,
  2017   2016   2017   2016
Net (Loss) Earnings $ (59.5 )   $ 3.3     $ 34.1     $ 33.7  
Income tax (benefit) expense (32.1 )   (1.2 )   17.9     2.0  
Interest expense, net 76.5     77.3     229.6     232.3  
Loss on extinguishment of debt 160.4         222.9      
Non-cash mark-to-market adjustments and cash settlements on interest rate and cross-currency swaps 45.2     62.6     (100.3 )   169.4  
Depreciation and amortization, including accelerated depreciation 77.8     75.7     232.9     226.9  
Provision for legal settlement     10.0     73.6     10.0  
Net foreign currency gains for purchase price of acquisition (33.5 )       (33.5 )    
Non-cash stock-based compensation 6.0     4.5     17.4     12.9  
Integration costs 1.0     3.3     5.8     17.0  
Transaction costs 3.4         6.1     1.1  
Restructuring and plant closure costs     0.7     0.2     6.0  
Assets held for sale     1.1     (0.2 )   9.5  
Inventory valuation adjustments on acquired businesses             1.1  
Mark-to-market adjustments on commodity hedges (1.1 )   (6.4 )   (3.8 )   (5.4 )
Gain on sale of business             (2.0 )
Foreign currency loss (gain) on intercompany loans     0.1         (0.1 )
Adjusted EBITDA $ 244.1     $ 231.0     $ 702.7     $ 714.4  
Adjusted EBITDA as a percentage of Net Sales 19.2 %   18.5 %   18.6 %   19.0 %

 

RECONCILIATION OF SEGMENT PROFIT TO ADJUSTED EBITDA (Unaudited)
THREE MONTHS ENDED JUNE 30, 2017
(in millions)
                       
  Post
Consumer
Brands
  Michael
Foods
Group
  Active
Nutrition
  Private
Brands
  Corporate/
Other
  Total
Segment Profit $ 96.9     $ 46.4     $ 28.0     $ 8.0     $     $ 179.3  
General corporate income and other                 11.2     11.2  
Operating Profit 96.9     46.4     28.0     8.0     11.2     190.5  
Depreciation and amortization 27.4     36.5     6.3     6.7     0.9     77.8  
Net foreign currency gains for purchase price of acquisition                 (33.5 )   (33.5 )
Non-cash stock-based compensation                 6.0     6.0  
Integration costs 1.0                     1.0  
Transaction costs                 3.4     3.4  
Mark-to-market adjustments on commodity hedges                 (1.1 )   (1.1 )
Adjusted EBITDA $ 125.3     $ 82.9     $ 34.3     $ 14.7     $ (13.1 )   $ 244.1  
Adjusted EBITDA as a percentage of Net Sales 29.3 %   15.8 %   18.2 %   11.1 %       19.2 %

 

RECONCILIATION OF SEGMENT PROFIT TO ADJUSTED EBITDA (Unaudited)
THREE MONTHS ENDED JUNE 30, 2016
(in millions)
                       
  Post
Consumer
Brands
  Michael
Foods
Group
  Active
Nutrition
  Private
Brands
  Corporate/
Other
  Total
Segment Profit $ 75.2     $ 65.6     $ 17.7     $ 9.0     $     $ 167.5  
General corporate expenses and other                 (25.5 )   (25.5 )
Operating Profit (Loss) 75.2     65.6     17.7     9.0     (25.5 )   142.0  
Depreciation and amortization 26.1     35.5     6.4     6.2     1.5     75.7  
Provision for legal settlement     10.0                 10.0  
Non-cash stock-based compensation                 4.5     4.5  
Integration costs 3.3                     3.3  
Restructuring and plant closure costs                 0.7     0.7  
Assets held for sale                 1.1     1.1  
Mark-to-market adjustments on commodity hedges 0.1     (2.0 )           (4.5 )   (6.4 )
Foreign currency loss on intercompany loans     0.1                 0.1  
Adjusted EBITDA $ 104.7     $ 109.2     $ 24.1     $ 15.2     $ (22.2 )   $ 231.0  
Adjusted EBITDA as a percentage of Net Sales 24.1 %   21.1 %   15.4 %   11.0 %       18.5 %

 

RECONCILIATION OF SEGMENT PROFIT TO ADJUSTED EBITDA (Unaudited)
NINE MONTHS ENDED JUNE 30, 2017
(in millions)
                       
  Post
Consumer
Brands
  Michael
Foods
Group
  Active
Nutrition
  Private
Brands
  Corporate/
Other
  Total
Segment Profit $ 268.6     $ 72.1     $ 74.1     $ 24.5     $     $ 439.3  
General corporate expenses and other                 (35.1 )   (35.1 )
Operating Profit (Loss) 268.6     72.1     74.1     24.5     (35.1 )   404.2  
Depreciation and amortization 81.5     110.0     18.8     19.9     2.7     232.9  
Provision for legal settlement (0.9 )   74.5                 73.6  
Net foreign currency gains for purchase price of acquisition                 (33.5 )   (33.5 )
Non-cash stock-based compensation                 17.4     17.4  
Integration costs 5.8                     5.8  
Transaction costs                 6.1     6.1  
Restructuring and plant closure costs                 0.2     0.2  
Assets held for sale                 (0.2 )   (0.2 )
Mark-to-market adjustments on commodity hedges     (2.4 )           (1.4 )   (3.8 )
Adjusted EBITDA $ 355.0     $ 254.2     $ 92.9     $ 44.4     $ (43.8 )   $ 702.7  
Adjusted EBITDA as a percentage of Net Sales 27.8 %   16.1 %   17.9 %   11.1 %       18.6 %

 

RECONCILIATION OF SEGMENT PROFIT TO ADJUSTED EBITDA (Unaudited)
NINE MONTHS ENDED JUNE 30, 2016
(in millions)
                       
  Post
Consumer
Brands
  Michael
Foods
Group
  Active
Nutrition
  Private
Brands
  Corporate/
Other
  Total
Segment Profit $ 212.8     $ 236.0     $ 42.0     $ 29.6     $     $ 520.4  
General corporate expenses and other                 (83.0 )   (83.0 )
Operating Profit (Loss) 212.8     236.0     42.0     29.6     (83.0 )   437.4  
Depreciation and amortization, including accelerated depreciation 78.6     106.0     18.8     18.6     4.9     226.9  
Provision for legal settlement     10.0                 10.0  
Non-cash stock-based compensation                 12.9     12.9  
Integration costs 17.0                     17.0  
Transaction costs                 1.1     1.1  
Restructuring and plant closure costs                 6.0     6.0  
Assets held for sale                 9.5     9.5  
Inventory valuation adjustments on acquired businesses     1.1                 1.1  
Mark-to-market adjustments on commodity hedges (0.2 )   (1.6 )           (3.6 )   (5.4 )
Gain on sale of business     (2.0 )               (2.0 )
Foreign currency (gain) loss on intercompany loans     (0.4 )           0.3     (0.1 )
Adjusted EBITDA $ 308.2     $ 349.1     $ 60.8     $ 48.2     $ (51.9 )   $ 714.4  
Adjusted EBITDA as a percentage of Net Sales 24.0 %   21.0 %   14.6 %   12.0 %       19.0 %

Contact:
Investor Relations
Brad Harper
brad.harper@postholdings.com
(314) 644-7626

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